2003 (11) TMI 282 - AT - Income Tax

Summary

Issues Involved:
1. Delay in filing the application for registration under section 12A of the Income Tax Act.
2. Allegations of non-compliance with the rules in the memorandum of association.
3. Allegations of the society being run as a proprietary concern of the founder's family.
4. Allegations of the society existing for profit rather than educational purposes.
5. Allegations of collecting amounts over and above the prescribed fee.
6. Allegations of violating the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act.
7. Allegations of indulging in commercial activities.
8. Allegations of making huge surpluses and benefiting the management family.

Detailed Analysis:

1. Delay in Filing the Application for Registration under Section 12A:
The assessee applied for registration under section 12A of the IT Act on January 1, 2002, after the deletion of section 10(22) from the statute book. The delay was explained as due to the previous exemption under section 10(22) and the subsequent need to seek exemption under section 10(23C). The tribunal found the explanation reasonable and condoned the delay, noting that the delay was not mala fide or intentional. The tribunal referenced the Supreme Court's judgment in *Collector, Land Acquisition vs. Mst. Katiji & Ors.*, emphasizing a liberal approach to condonation of delays to ensure substantial justice.

2. Allegations of Non-Compliance with the Rules in the Memorandum of Association:
The DIT (Exe.) alleged that the society was not functioning as per the rules in the memorandum of association, questioning the genuineness of membership and the accuracy of accounts. The tribunal found that the society had been following the provisions and rules of the Societies Registration Act meticulously. The tribunal noted that the Revenue did not provide any material evidence to support the allegations of non-compliance.

3. Allegations of the Society Being Run as a Proprietary Concern of the Founder's Family:
The DIT (Exe.) claimed that the society was run as a proprietary concern of the founder's family. The tribunal observed that the society had been running several educational institutions, and there was no evidence to suggest that it existed for the benefit of the management family. The tribunal found that the rents paid for properties leased from family members were reasonable and justified.

4. Allegations of the Society Existing for Profit Rather Than Educational Purposes:
The DIT (Exe.) questioned whether the society existed solely for educational purposes and not for profit. The tribunal noted that the society had been granted exemption under section 10(22) for many years, indicating that it existed for educational purposes. The tribunal referenced the Supreme Court's judgment in *Aditanar Educational Institution vs. Addl. CIT*, which established that incidental surpluses do not negate the charitable nature of an educational institution.

5. Allegations of Collecting Amounts Over and Above the Prescribed Fee:
The DIT (Exe.) alleged that the society collected amounts over and above the prescribed fee and did not record them in the books of account. The tribunal found that the society had properly recorded all fees collected in the books of account and had not violated the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act. The tribunal noted that the Revenue did not provide any evidence to support these allegations.

6. Allegations of Violating the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act:
The DIT (Exe.) alleged that the society violated the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act by collecting capitation fees. The tribunal found no evidence to support this allegation and noted that the society had provided detailed explanations and supporting documents to refute the claim.

7. Allegations of Indulging in Commercial Activities:
The DIT (Exe.) claimed that the society was indulging in commercial activities such as bill discounting. The tribunal found that the transactions with Kotak Mahindra Finance Ltd. were related to the assessment year 1996-97 and were not indicative of commercial activities. The tribunal noted that the Revenue had accepted the society's return for that year and granted exemption under section 10(22).

8. Allegations of Making Huge Surpluses and Benefiting the Management Family:
The DIT (Exe.) alleged that the society was making huge surpluses and benefiting the management family. The tribunal found that the surpluses were incidental and were reinvested in the educational institutions. The tribunal referenced the Supreme Court's judgment in *CIT vs. A.P. State Road Transport Corporation*, which established that incidental profits do not negate the charitable purpose of an institution.

Conclusion:
The tribunal concluded that the society's activities were genuine and in line with its charitable purpose of education. The tribunal directed the DIT (Exe.) to grant registration under section 12A of the IT Act to the society. The appeal filed by the assessee was allowed.